Amazon is Finally Acting Like a Retailer, and What That Means for Brands

Amazon.com sometimes speaks in mysterious ways. For example, sellers on the platform recently received a message saying, “Effective April 22, 2021, FBA products will no longer be subject to ASIN-level quantity limits. Instead, restock limits will be set at the storage-type level, offering you more flexibility in managing your shipments.”

In plain English this meant that Amazon was now setting limits on its warehouses based on how much storage space you used, not how many items you have. This changed an existing policy the company imposed in July 2020, which placed strict controls on how many units of a new product could be sent to its warehouses. The new move marked a major shift and, naturally, had a big impact on some brands’ Prime Day performance.

While many are speculating on the reasons these changes are happening, the strategic implications are clear: Amazon is increasingly behaving like a traditional retailer.

To understand what I mean, let’s start with a little history. Prior to last year, Amazon Marketplace, known in the industry as Amazon 3P, did not operate like a normal store. It was much more like an endless open-air bazaar, where vendors could simply set up table after table, row after row, stretching as far as the eye could see. The idea was not to manage inventory efficiently, but to capture as many sales as possible — to be the everything store.

Yes, there were storage fees, but brands soon developed a strategy around them. They would stock a large inventory of long-tail items in hopes that they didn’t lose more money on fees than they made in sales. In this scenario brands listed as many SKUs (ASINs) as possible to harvest as many sales as possible, no matter how infrequent they may have been.

The logic behind this approach has begun to unravel as Amazon has increasingly tightened inventory restrictions. The pressure is now on brands to increase throughput, reduce inventory levels, and generally start treating the platform like a traditional retail channel rather than a convenient warehouse.

This isn't necessarily a bad thing. The great warehouse in the sky made everyone lazy. If you’re an efficient brand today, you shouldn't need to sit on more than 90 days of inventory, regardless of what Amazon tells you. You need to be much more agile and just-in-time, optimizing working capital, making better investments, and increasing the velocity of your flow and throughput. Accomplishing this, however, requires three major tasks:

1. Curate your assortment. Rather than stocking items to hedge your bets, you need to curate an assortment that resonates with consumers on Amazon. It’s a good idea to edit long-tail items, eliminating them entirely or perhaps selling them in another way. This makes it easier for consumers to navigate your offerings, while allowing you to focus your time and resources on marketing and merchandising, the things that matter most. Doing this should open up the floodgates on your top-selling products.
2. Flow just-in-time. Today’s inventory management systems are sophisticated enough to anticipate demand and ship product just when it’s needed. Rather than following a “set and forget” Amazon strategy, it’s time to get smart about what you have in stock and when.
3. Still innovate and launch new products. While Amazon is now restricting the number of items that you can put in its warehouse, that doesn't mean you should stand down on new product launches. Brands need innovation to grow, so it’s no time to stop developing the next product your customers will love.

The simple fact is that Amazon has, by design or necessity, begun behaving like a smarter retailer, and brands need to follow suit. For many of them, this won't be easy, but they will be undertaking a complete shift from a largely passive merchandising strategy to one that's by necessity active and anticipatory. A transition like that can certainly be painful, but it will also bring a welcome maturation that will make brands much more agile, efficient and profitable, and that’s never a bad thing.

Tim Hershey is chief retail officer at Netrush, an online retailer that partners with premium brands to provide the teams, technology, strategy, and infrastructure needed to thrive on Amazon.